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How Scarce Does Water Need to Get Before It's Valuable?

Billions of dollars worth of water infrastructure upgrades are needed in the United States to stop major water losses each year. There will soon be too many people on this planet for everyone to consume as much water as they do today. Earlier this month, as U.S. newspapers warned of a drought-induced bacon shortage, international scientists cautioned that pending water shortages could result in food shortages of all kinds, urging people to eat fewer water-intensive foods (namely, meat). Everyone seems to agree that water shortages are coming, they could bring with them huge and widespread problems touching everything from food to energy, and that there are business opportunities and risks associated with water, but still nothing seems to have changed since the first headlines touted water as “the new oil” over a decade ago.

The Carbon Disclosure Project (CDP) released its Global Water Report today, compiled from information received from 470 investors representing US$50 trillion in assets, and 318 companies listed on the FTSE Global Equity Index Series (Global 500) that operate in sectors which are water-intensive or exposed to water-related risks. The report reveals that although the risks of droughts and floods are clear, and investors are beginning to care more and more about water, corporate boardrooms continue to be slow to move.

There has been a 33 percent increase in the number of investors asking for corporate water disclosure through CDP, but the response rate from the Global 500 has remained stagnant since last year (at 60%). The report’s authors say the increased investor interest is likely to do with a growing understanding of water-related risks such as drought, scarcity, quality, excess, all of which are increasing, as is the number of companies that have already been detrimentally affected by water. This year, U.S. droughts have rocked the food and biofuels industries. Last year, Intel issued a US$1 billion profit warning and the Japanese automotive industry were expected to lose around US$450 million of profits as a result of the interruption floods caused to their Thailand-based operations and value chain. CDP analysis indicates that current “business as usual” water management practices and levels of water productivity will put at risk approximately US$63 trillion, or 45 percent of the projected 2050 global GDP (at 2000 prices), equivalent to 1.5 times the size of today’s entire global economy. More than half of Global 500 respondents (53%) have experienced detrimental water-related business impacts such as business interruption and property damage from flooding, with associated financial costs for some companies as high as US$200 million; this figure is up from 38% last year.

Despite all of this, the percentage of companies disclosing water information through CDP has stagnated, there has been little increase in the companies citing board level oversight of water and a third of businesses are unable to state whether water poses a risk to their supply chains. Energy companies fared particularly poorly in the report, coming in last amongst the industries with only 44% of companies responding.

“The Energy sector has recorded the lowest response rate of any sector for each of the past two years,” the report states. “This is surprising considering that the proportion of respondents reporting exposure to risk has risen significantly to 87% from 72% in 2011 and is markedly higher than the Global 500 average (68%). Despite widespread exposure to risk, relatively few respondents report board-level oversight of their water policies, strategies or plans (39%), and even fewer report setting concrete targets or goals (30%).”

On the plus side, all this water-related risk equates to business opportunities as well. The CDP calls water a strategic opportunity to improve financial and brand performance with 71% of respondents reporting a total of 319 water-related opportunities, such as the sale of new products or services. Of the opportunities reported, 79% are expected to materialize now or within the next five years, some with a sales potential of more than €800 million by 2020. And while water may not be getting the C-suite attention it deserves, many more companies are beginning to look at water-related supply chain risks (71%, up from 62% in 2011).

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